Start your week right!

This new report will show you how news developed over last week and some key things to look out for this week.

Written by Peter Watson, ex-stockbroker.

This report includes a Review and a Preview.

The REVIEW is an amalgamation of the “best bits” of the daily weekday newsletter/blog Watson's Daily last week, woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week.

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The PREVIEW is a summary of some of the key developments expected this week, plus a bit of extra comment from me. Scroll DOWN to see the preview.

Reading this report should only take about 10 minutes and it will set you up for the week 👍

THE DAY IN BRACKETS REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily if you want to know more. You will need to be a subscriber to access the extra information, but it is easy to get a free trial. You can do that HERE. Watson's Daily gives you the essence of daily newsflow, sourced from major broadsheets, in the business and financial markets overlaid with opinion from an experienced ex-stockbroker (me!). I give you a synopsis of the stories and tell you why they are important in an easily-digestible way.

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"The Review"

IN BIG PICTURE NEWS...

Queen Elizabeth II dies, Europe hammers out details of its energy plan and the ECB jacks up interest rates.

• IN THE US – the Biden administration bans “advanced tech” firms from building facilities in China for ten years (Thursday), upping the pressure on already-strained US-China relations. This is primarily a way of ensuring that companies who build semiconductor manufacturing facilities in the US with US grants don’t let the benefits flow back to China.
• IN CHINA – exports fell thanks to falling demand and Covid lockdown repercussions (Thursday).
• IN EUROPE – the ECB increased interest rates by 0.75% to 1.25% (Friday) and hinted that there could be more to come. Separately, it was also interesting to note that Brussels is pushing for more powers during crises (Tuesday), including things like forcing businesses to stockpile supplies and break their contracts. This sounds very alarming to me and I wonder whether they’re trying to push this through now as everyone is putting all their efforts into solving the energy problem.
• IN THE UK – Liz Truss became Prime Minister (Tuesday) and promised a hefty energy bailout (Wednesday).

IN ENERGY NEWS…

IN EUROPE – the EU started to hammer out details of its response to the energy crisis (Friday), which could include a windfall tax on European electricity companies (Thursday) – something that Germany has decided to do (Monday) – as utilities companies panic about the big increase in collateral requirements (Tuesday), which are occurring because of the extreme swings in energy prices.

IN THE UK – new PM Truss unveiled an energy bailout package for households (Friday) which caps household energy bills for two years and those of businesses for six months. A relief for households and although it’s better than nothing for businesses, the fact that there’s only a guarantee for six months will make it very hard to plan for anything.

The tech industry is worried about blackouts in the UK (Monday) but JP Morgan seems to think blackouts are more likely in Frankfurt than in London (Tuesday) as they are moving work over from Germany to the UK to ensure smooth trading. I wonder whether others will follow suit (if they haven’t done already) because of the same reasoning…

IN OIL NEWS…

The G7 is thinking about imposing a price cap on Russian oil (Monday), but I think it would be difficult to get consensus on among EU members and you do wonder whether it’s worth it anyway because India and China seem to be importing the stuff we are rejecting (Friday).

The oil price continued to weaken (Thursday) despite OPEC+ deciding to cut production (Tuesday) to arrest the slide. Against this backdrop, Spain’s biggest oil company, Repsol, sold a 25% stake in itself to US investment group EIG (Thursday) to raise money that it will invest in the transition to renewables.

IN CURRENCY AND CRYPTO NEWS…

• The pound hit lows versus the dollar not seen since 1985 (Thursday) and the Yen hits its lowest level versus the Dollar since August 1998 (Wednesday) as fears of a global recession prompted a “flight to quality”.
• More news emerged on recently-failed crypto trading platform Celsius Network that it was actually “insolvent for three years” (Thursday) before seeking out bankruptcy protection. No doubt other platforms will be looking particularly closely at their financials to make sure they don’t meet the same fate. Investors may get freaked out by all of this.

THERE WAS A LOT OF INTERESTING NEWSFLOW IN THE AUTOMOTIVE SECTOR...

• Ford and GM unveiled new EVs (Friday) and Rivian announced a joint venture with Mercedes (Friday) on electric vans.
• VW announced a much-anticipated move to float Porsche (Tuesday) but there was some initial resistance (Wednesday) given the relatively small size, the high valuation and the lack of voting rights.
• IN THE UK – car sales appear to have halted their slide (Tuesday), but Aston Martin had a disappointing rights issue (Tuesday), online car marketplace Cazoo decided to pull out of Europe (Friday) and plans to build a gigafactory in Coventry got torpedoed (Monday) because the site might have unexploded bombs from WW2.

CONSUMERS, EMPLOYMENT AND RETAIL SAW FURTHER EVOLUTION...

• IN CONSUMER NEWS – it seems that Americans are buying flash cars (Thursday) like Lamborghinis, Bentleys and Ferraris, according to automotive industry specialist JD Power. The divide between the haves and the have-nots continues to get wider. IN THE UK, consumer spending has slowed down (Tuesday) as everyone braces themselves for massive hikes in energy bills and workers face a cut in real wages (Wednesday) because inflation is rising faster than pay.
• IN EMPLOYMENT NEWS – Amazon says it’s going to slow down its hiring (Thursday) after a period of massive expansion during the pandemic but in the UK, challenger bank Revolut revoked graduate jobs (Thursday) as part of a sweeping cost review. This could be a company-specific or industry thing (maybe fintechs will be particularly vulnerable) but I wonder whether we’re going to see more of this going on as the economy gets weaker.
• IN RETAIL NEWS – GameStop announced disappointing Q2 numbers (Thursday) as efforts to turn around the fortunes of the former meme-stock failed to gain traction, and the CFO of troubled firm Bed Bath & Beyond died (Monday) by falling from a New York skyscraper, further complicating the situation at the embattled company. IN THE UK, Halfords announced strong numbers (Thursday) on the back of success in its car maintenance business, something I would have thought will continue as people hang on to their existing cars for longer because a) they’re not feeling like buying a big ticket item like a car right now, b) they’re putting off buying an EV because it’s expensive and c) they would like to wait for a bit to see a better charging network and a wider choice of cars. WH Smith’s numbers took a hit (Thursday) from a poor performance from its high street division and the damage caused by a cyberattack in April on its Funky Pigeon business. On the other hand, its cash-cow travel business (outlets at stations, airports etc.) rose above pre-pandemic levels and it decided to leave its full-year guidance unchanged. Elsewhere, Primark’s owner, Associated British Foods, announced a profit warning (Friday) on pessimism about the effect of inflation on customers’ pockets and Matalan put itself up for sale (Monday). Meanwhile, John Lewis thinks it has identified a new trend (Thursday), that we are transitioning to a “moments economy” where we want to buy affordable treats more often as the economy falls around our ears. This sounds like another way of referring to “the lipstick effect” where sales of lipstick rise in tough economic times because people still want to treat themselves, albeit on a smaller scale.

THERE WERE SOME IMPORTANT TECH DEVELOPMENTS...

• The Irish data regulator slapped a €405m fine on Instagram (Tuesday) for failing to adequately protect children’s data. This came after a two-year investigation and is the third fine it has slapped on Meta. It seems that crackdowns on US Big Tech are gathering momentum, but we really need to see the US regulators and lawmakers get onside – and it’s not clear whether we can expect Americans to punish one of their most valuable exports.
• Apple had its “event” this week (Friday), but it was more evolution than revolution in terms of product launches. Everything was just a bit better and a bit more powerful than what has come before. It was interesting, however, to see that Apple announced it was going to double headcount in its digital advertising division (Tuesday). Changes in Apple’s privacy settings have done a lot of damage to advertising revenues at Facebook, Twitter and Snap – but Apple has benefited handsomely at their expense! Is this a sign of things to come?
• British cybersecurity company Darktrace saw its shares crater by almost 35% (Friday) as US private equity firm Thoma Bravo decided to walk away from its mooted purchase. Under UK takeover rules, it won’t be able to make another offer for six months unless there are exceptional circumstances.

AND IN OTHER NEWS...

• IN CONSTRUCTION – UK construction activity fell in August due to higher prices hitting demand for housing (Wednesday), which was something we saw elsewhere as one of London’s biggest housebuilders, Berkeley, said it was slowing down plans on building new homes (Wednesday) and would be more selective about new projects.
• IN REAL ESTATE – Vistry Group and Countryside announced plans to merge in a £1.3bn cash-and-shares deal (Tuesday) and it is now with shareholders for approval.
• Big Four accountancy firm EY is moving towards splitting its audit and consulting businesses (Wednesday) and there will be another partner vote at the end of this year/beginning of next. This could have a considerable impact on other professional services firms as an IPO could give EY more currency to attract talent and/or buy other businesses.
• Former vaping giant Juul is to pay $438.5m to settle an investigation on underage vaping (Wednesday). Will this mean a cloud has lifted and it will go from strength to strength from now or is this just the beginning of the end?
• The FDA approved a rival to Botox (Friday), called Daxxify which is made by Revance Therapeutics. AbbVie’s Botox currently has a 70% market share of the anti-aging market and is very profitable. This looks like it is about to change as Daxxify last for six months whereas Botox lasts for four.
• The container shipping industry is facing a tough reality as the boomtimes of the last three years look likely to end (Friday). MSC, Maersk and Hapag-Lloyd are among the companies to have made huge profits because of sky-high demand and freight rates, but that seems to be losing momentum as worries about global inflation and potential recession take hold.
• Cineworld filed for bankruptcy in the US with debts of $5bn (Thursday) after the world’s #2 cinema chain suffered the consequences of abysmal timing of a takeover deal just before Covid hit.
• UK banks are getting into the BNPL market (Monday) in a bid to jump onto the latest bandwagon. I would have thought that it’s easier for a bank to offer BNPL services because it’s just a variation of what they already do, whereas I would have thought that BNPL specialists like Klarna won’t be able to offer banking services. If banks continue down this road and regulators get heavier-handed with the BNPL sector, there may not be a BNPL sector left! I wonder whether banks will just buy these businesses (maybe even Klarna itself!) to hasten the development of this as a standalone service or perhaps as part of a newer brand designed to attract a younger demographic.

COMING UP THIS WEEK ("The Preview")...

Here's what's on the menu for this coming week (NB this is not exhaustive):

Monday

• India - August CPI numbers and July industrial production data
• UK - GDP estimate for July and trade figures, construction output numbers
• Results - Oracle

Tuesday

• US - August CPI numbers
• Japan - August producer price index data
• Germany - August CPI numbers and ZEW economic sentiment survey
• UK - labour market numbers
• OPEC - publishes its monthly oil market report
• Results - Fevertree (what's the story now after it had a profit warning in July?), Ocado (are online sales slowing down now that more people are returning to shops?), Trustpilot. Also, Twitter shareholders get to vote on whether or not to accept Elon Musk's $44bn takeover offer

Wednesday

• US - August CPI numbers
• Japan - Monthly industrial production numbers,Tankan business survey
• EU - monthly industrial production numbers
• UK - CPI and PPI numbers published for August, ONS publishes monthly house price index (will more pressure pile on the Bank of England to raise interest rates?)
• Results - Dunelm (is it being particularly badly affected thanks to inflation hitting household budgets - and therefore overall willingness to buy big ticket items like furniture?), Inditex (how's it doing versus rival H&M? Any standout trends?), Redrow (will these results confirm fears of rivals that the housing market is slowing down?), Tullow Oil

Thursday

• US - August industrial production numbers
• Japan - monthly trade figures
• EU - monthly trade figures
• France - August CPI numbers
• Results - Adobe Systems, H&M (how are they doing versus rival Inditex?), THG (any reasons for this company to bounce back after falling to record lows this year?), John Lewis Partnership (how are initiatives going to revive its fortunes? Any news on the real estate segment? How's food doing versus non-food?), Kier, Trainline (is the bounceback sustainable? What commuter trends is it seeing?)

Friday

• China - August retail sales numbers (taking on new importance given China's recent weakness. How much have they been hit by lockdowns?), industrial production numbers
• Canada - wholesale trade figures
• Italy - finalised July CPI and trade numbers
• UK - August retail sales numbers (did the heatwave depress activity?)
• Results - Wickes (has the lockdown DIY frenzy truly died?)

BANTER

My favourite “alternative” story this week was unquestionably Japanese hotel gives you a beer tap in your room, 10 liters of craft beer to drink for free (SoraNews24, Casey Baseel). How great is this?!?

REMEMBER - IF YOU LIKE THIS NOTE, PLEASE RECOMMEND IT TO YOUR FRIENDS/SIBLINGS/COUSINS/PEOPLE YOU MEET DOWN THE PUB/PARTNERS/PARTNERS' FRIENDS ETC. This would really help me out😀!